The stablecoin sector is expected to become the next trillion market capitalization.

Blockchain technology is essentially an extension of payment scenarios. Stablecoins not only occupy an important position in the cryptocurrency market but are also playing an increasingly significant role in global payments, cross-border settlements, and other areas. Currently, centralized stablecoins still account for over 90% of the market share, with USDT holding an absolute dominant position. Although the issuance of stablecoins has exceeded $150 billion, it only represents 0.75% compared to the Federal Reserve's reported $20 trillion M1 for 2024. The application of stablecoins in the payment field still has enormous potential. The launch of the Taproot Assets protocol indicates that stablecoins have broad prospects in high-frequency small payment scenarios, and are expected to drive the large-scale adoption of stablecoins as a regular payment method.

1. Stablecoin: The Future Trillion-Dollar Market

The rapid development of the stablecoin market demonstrates its potential to become a trillion-dollar market in the future financial sector. Currently, the market capitalization of stablecoins has exceeded 160 billion USD, with a daily trading volume exceeding 100 billion USD. Major countries are introducing policies and regulations related to stablecoins. Various institutions predict that stablecoins will bring a new trillion-dollar market, with the main growth coming from global payment applications.

Stablecoins can be divided into two main categories: centralized and decentralized. Currently, centralized stablecoins dominate the market, with USDT and USDC issuing $114.46 billion and $34.15 billion of dollar stablecoins, respectively. Tether has only 125 employees, yet it achieves an annual gross profit of $4.5 billion. This enticing opportunity has attracted many large institutions to position themselves.

• BlackRock has issued a tokenized fund BUIDL on Ethereum, providing stable value and yield, with a market capitalization of $384 million.
• JD Coin Chain Technology plans to issue a stablecoin pegged to the Hong Kong dollar at a 1:1 ratio.

Centralized stablecoins have been widely adopted in the crypto ecosystem for daily transactions and settlements. Decentralized stablecoins are mostly collateralized by crypto assets and are primarily used for lending.

In the long term, the most promising application scenario for stablecoins is in the payment field, especially in cross-border payments. Currently, cross-border payments involve multiple intermediary institutions, with complex processes, high costs, and slow settlements. Stablecoins are not only a better choice but also an important channel for economic participation. As regulations trend towards compliance, the position of stablecoins in global payment scenarios will become increasingly important. In the future, after large-scale adoption of stablecoins in the payment field, it is expected to integrate with DeFi to give rise to PayFi, achieving interoperability, programmability, and composability of payment scenarios, forming a new financial paradigm and product experience that traditional finance cannot achieve.

2. Taproot Assets Protocol + Lightning Network: The Infrastructure of a Global Payment Network

Currently, stablecoins mainly circulate on the ETH and TRON blockchain networks, but the transaction fees generally exceed 1U, and the on-chain transfer time exceeds 1 minute. In contrast, the Lightning Network offers advantages of faster speed, lower costs, and higher scalability.

Introduction to Lightning Network 2.1

The Lightning Network is the first relatively mature second-layer scaling solution for the Bitcoin network. Several teams, including Lightning Labs, Blockstream, and ACINQ, independently developed the Lightning Network. Taproot Assets is an asset issuance protocol developed by Lightning Labs.

The Lightning Network is realized by establishing a bi-directional state channel. The two parties create a multi-signature address on-chain, allowing them to transfer Bitcoin in and out within a limit. After multiple transactions between the two parties, settlement occurs, with only the latest version being valid. Either party can broadcast the latest version to the blockchain at any time, without the need for trust or custody.

This allows both parties to conduct off-chain transactions without restrictions, only executing on the blockchain when the final transaction is completed or an error occurs. Similar to signing multiple legal contracts, but only resorting to court when there is a final confirmation or a dispute.

2.2 Lightning Network: The Best Infrastructure for Global Payments in Stablecoin

The Lightning Network allows users to conduct unlimited off-chain transactions without causing congestion on the Bitcoin network, while relying on the security of the Bitcoin network. Theoretically, scalability is unlimited.

The Lightning Network has been running for 9 years, built on the Bitcoin network, with over 57,000 nodes and a PoW mechanism, maximizing security.

The current capacity of the Lightning Network exceeds 5000 Bitcoins, with over 18,000 nodes and more than 50,000 channels worldwide. Instant low-cost transactions are achieved through bi-directional payment channels, which are being widely integrated and used by global payment providers and merchants, gradually becoming the consensus solution for global payments.

Bitcoin assets account for half of the cryptocurrency market capitalization, accompanied by the resurgence of cyclical trends. The Lightning Network, as the first layer two scaling solution for Bitcoin, has truly realized Satoshi Nakamoto's vision of peer-to-peer global payments, becoming the most consensus-driven Bitcoin community and the best solution for globalized payments.

2.3 Taproot Assets protocol completes the last mile of the Lightning Network

Previously, the Lightning Network only supported Bitcoin payments, and its application scenarios were limited. Most people were unwilling to pay with Bitcoin.

Although there are already first-layer issuance protocols for Bitcoin such as Atomical and BRC20, they do not support direct access to the Lightning Network. The Taproot Assets protocol addresses this issue. It is a Bitcoin asset issuance protocol developed mainly by Lightning Labs, supporting the issuance of various tokens and stablecoins.

Taproot Assets protocol assets are fully compatible with the Lightning Network, enabling stablecoin payments on the Lightning Network. This means that in the future, a large number of new assets based on the Bitcoin network will be issued, especially stablecoins, circulating on the Lightning Network, further empowering the Lightning Network's layout and influence in the global payment field.

Relying on the security and decentralization of Bitcoin, the "Bitcoinization of dollars and global financial assets" advocated by Lightning Labs is becoming a reality. The launch of the Taproot Assets mainnet protocol marks the official opening of trillion-dollar payment scenarios for stablecoins.

3. Detailed Explanation of Taproot Assets Protocol

The operation principle of the Taproot Assets(TA) protocol is based on the Bitcoin UTXO model and relies on the Taproot upgrade for implementation. These two core elements drive the effective operation of the protocol.

( 3.1 Comparison of UTXO Model and Account Model

UTXO is the foundation for the second layer of Bitcoin and protocols like Ordi and Runes. Most public chains, such as Ethereum and Solana, adopt the Account) model. The comparison between the two models is as follows:

The account model is similar to an Alipay account, where each transaction directly reflects changes in the account balance.

The UTXO model can be understood as a wallet that holds redeemable checks given by others and issued checks waiting to be redeemed by oneself. The wallet balance equals the total amount of received checks minus the total amount of issued checks. The Bitcoin network serves as the bank that can redeem these checks, calculating the latest balances of each address based on transaction conditions.

The UTXO model inherently eliminates the double-spending problem and provides higher security. The TA protocol fully inherits the security features of the Bitcoin network, avoiding the risk of erroneous transfers or missed transfers.

The TA protocol adopts a one-time sealing concept, where each UTXO confirmation expenditure cannot be reused, ensuring that assets move with UTXO. The miner who mines the longest chain has the final interpretation rights of UTXO. This enhances transaction security and avoids the risks of double spending attacks and errors or malicious actions that may arise from centralized institutions.

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) 3.2 Taproot upgrade enables complex functionalities

The Taproot upgrade in 2021 brought simple smart contract functionality to the Bitcoin network. P2TR format wallet addresses can implement complex logic through Bitscript, enabling new types of complex transactions to be possible on-chain.

The key improvement is the implementation of multi-signature ( multi-sign ). This enhances the transaction security for institutional users, as the length of the multi-signature address is the same as that of private wallet addresses, strengthening security and privacy protection. This provides a solid foundation for institutional and B2B transactions, promoting wider commercial applications.

The most intuitive experience for users is the change in wallet address format, with addresses starting with "bc1p..." supporting the Taproot upgrade.

3.3 TA Technical Principles

The early Ordinal and BRC20 protocols were based on an account model, where balances are tied to addresses. Asset issuance occurs by tagging the smallest unit of Bitcoin, "satoshi," mapping "satoshi" to assets. Asset state data is stored in the block's segregated witness section in JSON format.

This approach requires that every Ordinals and BRC20 asset transaction be recorded in the block, increasing the block size and the accumulation of invalid data. The TA protocol uses a more efficient method, marking assets on UTXO and only storing the script tree root hash on-chain, while the scripts are stored off-chain.

TA assets can be deposited into Lightning Network payment channels and transferred, representing a new type of asset that circulates on the Bitcoin mainnet and Lightning Network.

The TA protocol utilizes the Taproot upgrade to record asset state transition information in the Taproot Merkle tree. By leveraging the "one-time sealing" feature of Bitcoin UTXOs, it achieves consensus on asset state transitions on-chain, eliminating the need to run off-chain indexers of other protocols.

The TA protocol uses a sparse Merkle summation tree ( MS-SMT ) to manage asset states and defines the standards for asset state transitions. Only the root hash of the Merkle tree is written to the Bitcoin chain, without contaminating the Bitcoin chain.

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) 3.4 The relationship between TA Protocol and the Lightning Network

In Lightning Labs' latest product, TA protocol assets can seamlessly enter the Lightning Network through TA channels. Previously, the Lightning Network only supported the circulation of Bitcoin, but the TA protocol allows assets issued on the Bitcoin main chain, such as stablecoins (, to enter circulation on the Lightning Network.

The principle of the TA channel is the same as that of the state channel, based on hashed time-locked contracts. The TA assets themselves are within UTXO, and the TA channel mechanism has not changed, it simply supports the circulation of TA assets.

The TA protocol enables the circulation of Bitcoin's external assets through the Lightning Network, making seamless transfers of stablecoins and other assets on the Lightning Network possible.

) 3.5 User usage costs are high, centralized custody issues need to be resolved.

Although the TA protocol only records the transaction root hash on the chain, the asset data needs to be stored on each client. Users must have both the UTXO private key corresponding to the asset and the asset-related data on the Merkle tree.

The official implementation of the TA protocol ###Tapd( deeply relies on Lightning nodes )LND### wallet services, with no account management mechanism. The decentralized nature of the Lightning Network requires users to build their own nodes, making it difficult for ordinary users to participate, hindering large-scale adoption.

Currently, most lightning network wallet services are custodial solutions, and the new assets issued by TA will also be stored in custodial wallets. In the future, large assets may be prioritized for storage on the TA on the Bitcoin mainnet, while small assets will be deposited into the lightning network to meet payment needs. For the storage and security management of large assets, it is important to ensure that users fully own the ownership of stablecoins.

4. Self-Custody Solutions: Perfecting the Lightning Payment Network

The market has seen decentralized solutions for the circulation of TA assets on the Lightning Network. For example, LnFi has proposed a cloud hosting solution to facilitate users in deploying Lightning Network nodes, thereby lowering the participation threshold.

The BitTap team focuses on the decentralized infrastructure of the TA protocol ecosystem, developing a decentralized browser plugin wallet for users to provide self-custody rights.

BitTap proposes an innovative wallet protocol (Bittapd), where users have complete control over their private keys, and transactions are signed by Bittapd on behalf of the users to interact with Tapd. Users can enjoy a decentralized experience and security similar to Metamask. After the stablecoin is issued and circulated on TA, users can use the BitTap wallet to store and transfer stablecoin assets on the Bitcoin mainnet, and freely transfer change.